Midterm Learning Celebration – Labor Economics

October 29, 1998


Please show your work clearly in the space provided.  Difficult-to-read  writing or graphs will be marked incorrect.  Be sure to label all lines and axes on your graphs.  If you use the back of a page, indicate that you have done so on the front of the page.  May your efforts be truthfully revealed.


1.)  [3 points each] Give a brief definition of the terms below. 


marginal product of labor


law of diminishing returns




compensating wage differentials



2.) [12 points]  Using at least one graph, illustrate the effect of an effective minimum wage.  If you want, practice this graph on the back of the page.  When you have it the way you want it, draw a wonderfully clear rendition of it below.


a.      Who benefits from a minimum wage?



b.      Who loses?



c.       What happens to the unemployment rate?

(Explain, and illustrate your answers to a & b

on the graph)











3.) [6 points]  What are two of the market imperfections that could result in multiple wages for the same work (in violation of the perfect competition model)?





Circle the one best answer to the following questions [3 points each]:


4.)  MRP is

            a)  Marginal Return to Price

            b)  Men in Republican Party

            c)  the contribution to price made by reducing manufacturing.

            d)  the contribution to revenues made by the last input hired.

            e)  the contribution to profit made at the margin.


5.)  Firms will hire fewer workers as the result of

            a)  An decrease in the wage rate.

            b)  A decrease in the demand for the firm’s product.

            c)  An increase in the marginal product of workers.

            d)  An increased tariff on imported goods.

            e)  An increase in the price of the firm’s product.


6.)  The piecework system is in the same general category of pay rate determination as

            a) wage per hour.

            b) sales commissions.

            c) seniority increases.

            d) salary per year.

            e) cost of living adjustments.


7.)  In El Salvador, teenaged girls were paid how much for every $20 Gap shirt they sewed?

            a)  $9

            b)  $4

            c)  $1

            d)  46 cents

            e)  12 cents


8.)  [6 points]  In what three ways can unions increase wages?





9.)  [6 points]  If all firms have similar isoprofit functions and workers are heterogeneous, how can we interpret the slope of a line plotting wage/risk combinations for workers?  Explain in words, and illustrate your answer with a graph.











10.) [6] List two characteristics of work at R. R. Donnely that could lead to positive or negative compensating wage differentials.



11.)  [12 points]  Using at least one graph, describe as precisely as you can how a firm decides how many workers to hire.
















12.) [12]  a.  What two decision rules can be used to determine whether an investment in human capital is advisable? 




b.      Suppose the market interest rate is .10.  If you had the opportunity to earn 100 this period and 105 next period, OR invest 50 in human capital this period and earn 300 next period, would you invest?______  What is your internal rate of return? ______









13.) [6]  The materials Dr. Axtell distributed included “Five simple steps everyone can take” to stop sweatshops.  What are two of then?





14.)  [6] Name two theories of distributive justice and briefly state their distributive “rule.”






15.)  [4] From our research on corporate labor practices (your own or that reported by your classmates), list two labor-related programs that seemed beneficial to the companies, and two that perhaps should be eliminated.


            Beneficial                                                          Detrimental

a.                                                                                                                                           a.


            b.                                                                     b.